The Life division proves star performer for Aviva

AVIVA’S UK Life division starred as the insurer delivered annual profits up six per cent at £2.5bn and bolstered its balance sheet.

The nation’s biggest insurer, with more than 14 million customers in the UK, said it has boosted capital levels and only has limited exposure to weak European economies.

It generated £2.1bn of operating capital in 2011, up from £1.7bn a year earlier. Aviva said its capital surplus has risen to £3.3bn as of the end of February from £2.2bn at the end of last year.

“We are in Europe so it’s an important part of our business and that’s the way it is,” said David Barral, chief executive of York-based UK Life.

“The profits have gone up there as well because the business has taken action over the last couple of years in terms of focusing on more profitable business.”

Aviva generates about 40 per cent of its revenues in mainland Europe. Its exposure to sovereign debt securities of Greece, Portugal, Ireland, Italy and Spain is “minuscule” at £1.3bn, said Mr Barral, and accounts for just one per cent of total shareholder assets.

The UK accounted for roughly half of group profits.

The group, which has around 4,500 Yorkshire employees, has its UK life and pension business based in York. It has about 2,600 staff in York and 1,600 in Sheffield. Mr Barral said Aviva’s profits, which beat analysts’ consensus expectation of £2.4bn, were boosted by the performance of its UK life insurance and pensions arm. Operating profits at the division increased eight per cent to £920m and are now double the level six years ago.

It now has a 25 per cent UK market share in annuities – when funds built up in a pension scheme are converted into a regular income.

“We’ve just gone from strength to strength,” said Mr Barral, who took over from Toby Strauss 10 months ago. “We’ve really transformed the business over the past five to six years. It’s about investing in the right products that people want to buy.” He said sales of group personal pensions, where companies outsource management of employees’ pension schemes to Aviva, increased 66 per cent over the year.

“It’s just becoming more and more popular as companies try and remove the risk from their own balance sheets,” he said. “If you’re running a final salary scheme you’re carrying huge risk.

“We wrote over 530 new group employee schemes.”

Mr Barral said the annuity market is also growing as “all the baby boomers come through”. “People have to save and are not relying on the state. Although market conditions are very tough we are operating in markets which we’re benefiting from.” The group now claims a 12 per cent share of the UK life and pensions market, boosted through distribution deals with firms such as Barclays and Santander.

Across the entire group, life insurance profits increased seven per cent to £2.1bn. UK general insurance and health profits increased seven per cent to £520m.

Group chief executive Andrew Moss said he is hopeful efforts to overcome the European sovereign debt crises are beginning to work.

“There are going to be a few bumps in the road, I’m sure, but the overall trend is towards agreement and resolution,” he said.